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April 2, 2012

Investors Say No to Greek Bond Restructuring

Bonds issued under foreign law voted on separately

Investors holding Greek sovereign debt issued under foreign laws and denominated in dollars, euros, Swiss francs and yen said no to a Greek restructuring plan, leaving the country to find another way through its debt maze as it seeks to avoid outright financial collapse.

Bloomberg reported Monday that the bonds, which required a number of separate votes, total approximately $15.3 billion. Holders of those bonds and others, totaling about $26.8 billion, met in 36 separate meetings last week.

The Greek Public Debt Management Office announced Monday that in 20 of those 36 meetings, creditors rejected Greece’s attempt to restructure their holdings, in the amount of $11.5 billion, either by turning down the government’s proposal outright, adjourning the talks or failing to achieve a quorum. The bondholders in the other meetings accepted Greece’s measures.

“The key thing with the international bonds is that holders have to vote bond by bond rather than in aggregate," Thomas Costerg, European economist at Standard Chartered Bank, was quoted saying. “That makes it easier for investors to block the restructuring and raises the question of what Greece can do now.”

In the largest sovereign restructuring in history, Greece pushed investors in its domestic-law securities to take losses of around 70% on debt totaling 197 billion euros ($263 billion). The government insists that it has no funds to pay in full the bondholders of international-law securities.

Costerg said that the country’s options include additional discussions with bondholders in the hope of achieving some sort of compromise, a refusal to pay at all, or acceding to investors’ demands and paying in full. However, that last is problematic for a number of reasons, assuming that Greece could somehow find the money.

“Paying up in full would raise the issue of fairness regarding the domestic-law bondholders, while a hard default would make litigation likely,” he said in the report. “The bottom line is that this reminds investors that the Greek crisis and the euro-area crisis aren’t over.”

The first payment on a bond whose holders rejected restructuring is due on May 15, with a 30-day grace period. It is a 450-million-euro floating-rate note, and the situation will test the new Greek government that should be in place by the time the payment is due. Elections may be held in Greece as early as this month to replace the interim government of Prime Minister Lucas Papademos.